Cheque dishonour for loan guarantee payments: guarantor can face s.138 complaint; dismissal reversed and proceedings restored

A complaint under s.138 Negotiable Instruments Act, 1881 is maintainable against a guarantor where the cheque is issued in discharge of "any debt or other liability." The SC held that questions of co-extensive liability of guarantor and principal debtor under ss.126 and 128 Contract Act are outside the purview of s.138, whose language evidences legislative intent to attract criminal liability on cheque dishonour without any embargo based on the nature of the underlying obligation. The HC erred by focusing on guarantee principles and relying on irrelevant precedents, thereby overlooking the statutory text and object of s.138. The appeal was allowed and the HC order was set aside, restoring maintainability of proceedings under s.138 against the guarantor.

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Issues: Whether a complaint under Section 138 of the Negotiable Instruments Act, 1881 is maintainable against a guarantor who has issued a cheque in the factual context of the case.

Analysis: Section 138 applies where "any cheque" drawn by a person on his account in favour of another for discharge, in whole or in part, of any debt or other liability is returned unpaid; the provision includes the terms "any cheque" and "other liability" and contains prescribed presentation and notice conditions. The High Court quashed the proceedings on the basis that a cheque issued by a guarantor as security cannot be said to be for discharge of any debt or liability. The Supreme Court examined the literal and purposive scope of Section 138, emphasising that the words "any cheque" and "other liability" demonstrate legislative intent to capture cheques issued for discharge of liabilities irrespective of the drawer's status as guarantor. The Court found the question of co-extensive liability between principal debtor and guarantor to be outside the scope of Section 138 and held that reliance on other statutes (such as the Indian Contract Act provisions) was unnecessary for determining maintainability under Section 138.

Conclusion: A complaint under Section 138 of the Negotiable Instruments Act, 1881 is maintainable against a guarantor who issues a cheque in discharge of any debt or other liability.

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